-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K/NM4ipn282qRil1vXpqQU7Kxd670Nl8jARLx41jMMbtI+ZxmnDpzkSsy8lnw4YO e25KDX4fMGRIfXFflXWJZA== 0001005477-97-001124.txt : 19970423 0001005477-97-001124.hdr.sgml : 19970423 ACCESSION NUMBER: 0001005477-97-001124 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970421 SROS: NASD SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEBSECURE INC CENTRAL INDEX KEY: 0001003504 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 043296069 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-14584 FILM NUMBER: 97584602 BUSINESS ADDRESS: STREET 1: 1711 BROADWAY STREET 2: CORPORATE CENTER NORTH CITY: SAUGUS STATE: MA ZIP: 01906 MAIL ADDRESS: STREET 1: 1711 BROADWAY CITY: SAUGUS STATE: MA ZIP: 01906 10QSB/A 1 FORM 10QSB/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB/A-2 Amendment No. 2 to Quarterly Report Filed Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended Commission File Number November 30, 1996 0-21649 - ------------------------------ ---------------------- WEBSECURE, INC. --------------- (Exact Name of Small Business Issuer As Specified In Its Charter) Delaware 04-3296069 - ------------------------------ ---------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 1711 Broadway, Saugus, Massachusetts 01906 ------------------------------------------ (Address of Principal Executive Offices) (617) 867-2300 ------------------------------------------------ (Issuer's Telephone Number, Including Area Code) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ____ No__X__ As of January 17, 1997, the Company had outstanding 5,605,000 shares of Common Stock, $.01 par value per share. WEBSECURE, INC. INDEX Part I. Financial Information Page ---- Item 1. Financial Statements Balance Sheets as of November 30, 1996 (Unaudited) and August 31, 1996 (Audited)...... 3 Statements of Operations for the Three Month Periods ended November 30, 1996 and 1995 (Unaudited) and cumulative from inception (July 19, 1995) to November 30, 1996...................................................... 4 Statements of Cash Flows for the Three Month Periods ended November 30, 1996 and 1995 (Unaudited) and cumulative from inception (July 19, 1995) to November 30, 1996...................................................... 5-6 Notes to Financial Statements (Unaudited)............................... 8 Item 2. Plan of Operations ............................................. 9-11 Part II. Other Information .............................................. 13 Item 1. Legal Proceedings............................................... 13 Item 2. Changes in Securities........................................... 13 Item 3. Defaults Upon Senior Securities................................. 13 Item 4. Submission of Matters to a Vote of Security-Holders ............ 13 Item 5. Other Information .............................................. 13 Item 6. Exhibits and Reports on Form 8-K................................ 13 Signatures............................................................... 14 WebSecure, Inc. (A Development Stage Company) Balance Sheets
November 30, August 31, 1996 1996 ------------ ---------- (Unaudited) (Audited) ASSETS Current: Cash $ 7,974 $ 12,832 Accounts receivable, net 55,678 21,797 Inventories 9,106 5,971 Due from related parties 32,439 59,776 Prepaid expenses and other 28,394 6,600 ----------- ----------- Total current 133,591 106,976 Property and equipment, net 1,279,725 1,173,397 Deferred registration costs 641,260 424,060 Other assets 81,142 41,515 ----------- ----------- $ 2,135,718 $ 1,745,948 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses $ 1,135,342 $ 679,435 Due to related parties -- 125,635 Note payable to related party 699,083 672,000 Current portion of capital lease obligations 254,094 71,763 ----------- ----------- Total current liabilities 2,088,519 1,548,833 Capital lease obligation, less current maturities 826,837 300,430 ----------- ----------- Total liabilities 2,915,356 1,849,263 ----------- ----------- Stockholders' equity (deficit): Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, $.01 par value; 20,000,000 shares authorized; 2,105,000 shares issued and outstanding 21,050 21,050 Class B common stock, $.01 par value; 2,000,000 shares authorized; 625,000 shares issued and outstanding 6,250 6,250 Additional paid-in capital 7,827,025 7,827,025 Deficit accumulated during the development stage (8,633,963) (7,957,640) ----------- ----------- Total stockholders' equity (deficit) (779,638) (103,315) ----------- ----------- $ 2,135,718 $ 1,745,948 =========== ===========
See accompanying notes to financial statements -3- WebSecure, Inc. (A Development Stage Company) Statements of Operations
Cumulative from Inception Three Months Ended (July 19, 1995) to November 30, November 30, 1996 1995 1996 ----------- ----------- ----------- Revenues $ 87,041 $ 6,963 $ 184,296 Cost of revenues 188,012 25,274 381,452 ----------- ----------- ----------- Gross margin (100,971) (18,311) (197,156) ----------- ----------- ----------- Operating expenses: General and administrative 301,096 112,656 1,477,467 Selling and marketing 195,774 6,297 496,400 Research and development 45,148 32,114 623,396 Charge for acquired research and development -- -- 5,760,000 ----------- ----------- ----------- Total operating expenses 542,018 151,067 8,357,263 ----------- ----------- ----------- Loss from operations (642,989) (169,378) (8,554,419) Interest expense, net of interest income (33,334) -- (79,544) ----------- ----------- ----------- Loss before income taxes (676,323) (169,378) (8,633,963) Income taxes -- -- -- ----------- ----------- ----------- Net loss $ (676,323) $ (169,378) $(8,633,963) =========== =========== =========== Net loss per common and common equivalent shares $ (.14) $ (.04) $ (1.80) =========== =========== =========== Shares used in computing net loss per common and common equivalent shares 4,805,050 4,805,050 4,805,050 =========== =========== ===========
See accompanying notes to financial statements -4- WebSecure, Inc. (A Development Stage Company) Statements of Cash Flows
Cumulative from Inception Three Months Ended (July 19, 1995) to November 30, November 30, 1996 1995 1996 ----------- ------------ ------------------ Cash flows from operating activities: Net loss $ (676,323) $ (169,378) $(8,633,963) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Charge for acquired research and development -- -- 5,760,000 Issuance of common stock for professional services -- -- 79,800 Depreciation and amortization 100,300 18,077 297,766 Changes in operating assets and liabilities Accounts receivable (33,881) (1,719) (55,678) Inventories (3,135) (16,714) (9,106) Prepaid expenses and other (21,794) 8,639 (28,394) Accounts payable and accrued expenses 455,907 790,985 1,135,342 ----------- ----------- ----------- Net cash provided (used) by operating activities (178,926) 629,890 (1,454,233) ----------- ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (205,380) (647,571) (1,576,243) Deferred registration costs (217,200) (79,924) (641,260) Increase in other assets (40,875) (4,836) (82,390) ----------- ----------- ----------- Net cash used in investing activities (463,455) (732,331) (2,299,893) ----------- ----------- ----------- Cash flows from financing activities: Borrowings under capital leases 735,431 -- 1,124,487 Principal payments on capital lease (26,693) -- (43,556) (Increase) decrease in due from related parties 27,337 (268,454) (32,439) Decrease in due to related parties (125,635) (17,343) --
-5- WebSecure, Inc. (A Development Stage Company) Statements of Cash Flows (continued)
Cumulative from Inception Three Months Ended (July 19, 1995) to November 30, November 30, 1996 1995 1996 ----------- ----------- ----------- Cash flows from financing activities (continued): Proceeds from issuance of common stock -- 254,310 2,0l4,525 Proceeds from notes payable to related party 27,083 133,928 1,522,083 Payments of notes payable to related party -- -- (823,000) ----------- ----------- ----------- Net cash provided by financing activities 637,523 102,441 3,762,100 ----------- ----------- ----------- Net increase (decrease) in cash (4,858) -- 7,974 Cash, beginning of period 12,832 -- -- ----------- ----------- ----------- Cash, end of period $ 7,974 $ -- $ 7,974 =========== =========== =========== Supplemental disclosure of financing information: Cash paid for interest $ 5,997 $ -- $ 46,733
See accompanying notes to financial statements -6- WEBSECURE, INC. Notes to Financial Statements 1. General WebSecure, Inc. (the "Registrant") is in the development stage, and as such, success of future operations is subject to a number of risks similar to those of other companies in the same stage of development. Principal among these risks are the Company's limited operating history, history of operating losses, early stage of market development, competition from substitute products, larger more established competitors and rapid technological change. The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions for Form 10-QSB and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and changes in cash flows in conformity with generally accepted accounting principles. The accompanying unaudited condensed financial statements have been restated to reflect a reversal in revenue of amounts received from a license agreement with Manadarin Trading Ltd (Note 2). The unaudited condensed financial statements should be read in conjunction with the financial statements and related notes included in the Registrant's Form SB-2 Registration Statement as filed with the Securities and Exchange Commission (the "SEC") on December 4, 1996. In the opinion of management, the unaudited condensed financial statements contain all adjustments necessary for a fair presentation of the Registrant's financial condition and results of operations for the interim periods presented and all such adjustments are of a normal and recurring nature. The results of operations for the three months ended November 30, 1996 are not necessarily indicative of the results which may be expected for the entire fiscal year. Computation of Net Income (Loss) per Common and Common Equivalent Shares The net loss per common and common equivalent shares are computed by dividing the net loss by the weighted average number of shares outstanding during each period presented, as adjusted for the effects of application of SEC Staff Accounting Bulletin No. 83 ("SAB No. 83"). Pursuant to SAB No. 83, all common stock and common stock equivalents issued within twelve months prior to the initial filing of the registration statement relating to the Company's initial public offering (the "IPO") at a price less than the IPO price have been treated as outstanding for all reported periods. The number of shares used in the computation also assumes that each share of outstanding Class B Common Stock has been converted into four shares of Common Stock, which occurred on the date of filing of the Registrant's Form SB-2 Registration Statement with the SEC. Deferred Registration Costs As of November 30, 1996, the Company has incurred registration costs of $641,260 in connection with the IPO. These costs have been deferred and were charged against equity on December 10, 1996 at the completion of its IPO. -7- 2. Reversal of Revenue from Manadarin Trading Co. Ltd. As a result of an investigation, conducted over the last two months, at the company's request, by the Boston law firm of Hill & Barlow, the company is restating its revenues for the first quarter ended November 30, 1996.. During the first quarter, the company previously reported sales of approximately $887,000; approximately $792,000 of said sales were for licensing software that the company believed it had purchased in exchange for stock, from Manadarin Trading Company, Ltd., an Irish corporation. Based upon the Hill & Barlow investigation, the company has determined that it never received any software from Manadarin, and even though it received approximately $792,000 from two purported sublicensees of the software, WebSecure never delivered any software to them. The company stated it would book the money received from the sublicensees as cash, instead of revenue, and simultaneously record the approximately $792,000 as a liability on its books. WebSecure is considering what further action to take and intends to report its findings to proper authorities and will cooperate fully with any further investigation. 3. Subsequent events 1. The Registrant has been named as a defendant in three almost identical proceedings brought in the United States District Court for the District of Massachusetts (Nager v. WebSecure, Inc. et al); (Krause and Krause v. WebSecure, Inc., et al); and (Miller, Weberman and Fisher v. WebSecure, Inc. et al). The actions were commenced on March 26, 1997 and April 16, 1997. Also named as defendants were certain current and former officers and directors of the Registrant, Coburn & Meredith, Inc. and Shamrock Partners, Ltd., the underwriters of the Registrant's initial public offering (the "IPO"), and Centennial Technologies, Inc. ("Centennial"). The complaints allege that the registration statement filed by the Registrant in connection with the IPO contains certain false and misleading statements concerning the Registrant and its operations. The complaints seek compensatory damages, attorney's fees, and other damages. 2. The Registrant has responded to an inquiry by the Massachusetts Securities Division (the "Division"), which inquiry was commenced on March 19, 1997. The Division is seeking additional information surrounding the relationship between the Registrant and Centennial. Also named as subjects of the inquiry are Coburn & Meredith, Inc. and Shamrock Partners, Ltd. 3. The Registrant's President and Chairman of the Board, Carroll M. Lowenstein, was indicted for failure to file state income tax returns. -8- Item 2. PLAN OF OPERATIONS Overview The Registrant, a development stage company, offers Internet access and support services for secure communications and commercial transactions over the Internet. The company provides general Internet services, such as connectivity and communications services. The financial results for the period from inception (July 19, 1995) to November 30, 1996 primarily relate to the Company's initial organization and establishment of infrastructure. The Company has had limited revenues since inception and had a working capital deficiency at November 30, 1996. The results for the quarter ended November 30, 1996 are not necessarily indicative of the results of the Company's operations that may be expected for the fiscal year ending August 31, 1997. The Company completed its IPO on December 10, 1996. The Company sold 1,000,000 shares of common stock and 1,150,000 redeemable warrants, and received net proceeds of approximately $6,493,000. The Company's plan of operations for the next twelve months will principally involve the sale of connectivity and the provision of Internet access services. The Company intends to use a portion of the IPO proceeds to hire additional personnel, including marketing, sales and customer service personnel, as well as to continue to upgrade its Internet access infrastructure. Results of Operations Revenues. The Company generated $184,296 in revenues from its inception (July 19, 1995) through November 30, 1996. The Company had revenues of $87,041 during the three month period ended November 30, 1996, compared to $6,963 during the three months ended November 30, 1995, an increase of $80,078. Revenues since inception have been primarily comprised of connectivity and communications services. The Company anticipates it will derive revenues primarily from connectivity charges, hosting services, and intranet networking. Cost of revenues. The Company's cost of revenues, which consists primarily of Internet access costs, was $381,452 during the period from inception to November 30, 1996, $188,012 for the three month period ended November 30, 1996 and $25,274 for the three month period ended November 30, 1995. The Company's costs of revenues have increased each quarter since the Company's inception. General and Administrative. General and administrative expenses consist primarily of compensation expenses and fees for professional services. General and administrative expenses were $ 1,477,467 for the period from inception to November 30, 1996. General and administrative expenses were $301,096 for the three months ended November 30, 1996 compared to $112,656 for the three month period ended November 30, 1995. From inception -9- through November 30, 1996, approximately $1,113,000 of the general and administrative expenses were paid to Employee Resource, Inc. ("ERI"), an employee leasing company owned by the Company's former President and Chief Executive Officer. ERI leases to the Company all of its employees, including the officers of the Company. Selling and Marketing. Selling and marketing expenses consist primarily of salaries, commissions, trade show expenses, and advertising and marketing costs. The Company has incurred $496,400 in expenses for selling and marketing during the period from inception to November 30, 1996. Selling and marketing expenses were $195,774 for the three month period ended November 30, 1996 compared to $6,297 for the three month period ended November 30, 1995. The increase is primarily attributable to the start-up of the Company's marketing activities and the expansion of its service options. The Company intends to use a direct selling force that will target certain industries and sell across vertical markets, as well as independent sales agents and distributors. Research and Development. The Company's research and development efforts are focused on development of the Company's co-hosting capabilities. The Company is also developing intranet models for intraorganization communications that can be used by multi-site organizations. The Company's engineers are also developing the Company's communications infrastructure to allow for daily information transfer to the Company for periodic back-up of customer files and disaster control purposes. Research and development expenses totaled $623,396 from inception to November 30, 1996. Research and development expenses totaled $45,148 for the three month period ended November 30, 1996, compared to $32,114 for the three month period ended November 30, 1995. The increase in research and development expenses is due primarily to infrastructure development. Operating Loss. Operating loss for the period from inception to November 30, 1996 was $8,554,419. Operating loss was $642,989 for the three months ended November 30, 1996 compared to an operating loss of $169,378 for the three months ended November 30, 1995. The operating loss from inception resulted primarily from a non-cash charge in connection with the acquisition of software. Net Interest Expense. Net interest expense for the period from inception to November 30, 1996 was $79,544 and $33,334 for the three months ending November 30, 1996. There was no interest income or expense for the three months ended November 30, 1995. This increase in interest expense was due to an increase in borrowing and capital lease obligations. Income Taxes. Since inception, the Company has generated tax benefits related to its operating loss carry-forwards and amortization of research and development costs. The deferred asset related to such benefits was fully reserved as of November 30, 1996 due to the significant doubt about the realization of the deferred tax asset. Taxes on income for the three months ended November 30, 1996 was offset in full by the utilization of the deferred tax benefits. Accordingly, there has been no income tax expense or benefit reflected on the accompanying statements of operations since inception. -10- Liquidity and Capital Resources Since its inception, the Company has financed its activities primarily by notes payable from a stockholder and the sale of its Common Stock to private investors. Working capital deficiency at November 30, 1996 was $1,954,928. The Company has three capital lease agreements which are secured by fixed assets. The outstanding balance as of November 30, 1996 for one of these agreements was approximately $355,000 and matures in December 2000. In September 1996, the Company entered into two additional capital lease agreements under which it may borrow up to an aggregate of $1,000,000 of which approximately $726,000 was outstanding at November 30, 1996. These obligations mature in October 2001. On December 10, 1996, the Company deposited, as collateral, a portion of the proceeds from the IPO equal to the amount outstanding under these agreements. For the three months ended November 30, 1996, cash of approximately $178,900 was used by operating activities compared to cash provided by operating activities of approximately $630,000 for the three months ended November 30, 1995. During the period from inception to November 30, 1996, the Company recorded a non-cash charge of $5,760,000 against earnings for acquired research and development, which was a substantial component of the Company's overall net loss for the period of approximately $8,633,963. Cash used in investing activities was approximately $464,000 for the three months ended through November 30, 1996, as compared to approximately $732,000 for the three month period ended November 30, 1995. The increase in cash used in investing activities is due primarily to the acquisition of property and equipment and deferred registration costs. In December 1995, the Company raised approximately $2,014,500 from the sale of Common Stock to third party investors. The Company has borrowed approximately $1,522,000 from related parties since inception, all of which has been repaid as of January 17, 1996. Management believes that the net proceeds from the IPO will be sufficient to meet the Company's anticipated cash needs and finance its plans for expansion for at least the next twelve months. Thereafter, the Company anticipates that it may require additional financing to meet its current plans for expansion. No assurance can be given of the Company's ability to obtain such financing on favorable terms, if at all. If the Company is unable to obtain additional financing, its ability to meet its current plans for expansion could be materially adversely affected. Impact of Inflation Inflation has not had a material adverse effect on the Company's business. New Accounting Standards Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," issued by the -11- Financial Accounting Standards Board ("FASB"), is effective for financial statements for fiscal years beginning after December 15, 1995. The new standard establishes new guidelines regarding when impairment losses on long-lived assets, which include plant and equipment and certain identifiable intangible assets and goodwill, should be recognized and how impairment losses should be measured. The Company does not expect the adoption of this standard to have a material effect on its financial position or results of operations. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has determined that it will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company will be required to disclose the pro forma net income or loss and per share amounts in the notes to the financial statements using the fair-value-based method beginning in the year ending August 31, 1997, with comparable disclosures for the year ended August 31, 1996. The Company has not determined the impact of these pro forma adjustments. -12- Part II - Other Information Item 1. Legal Proceedings. None Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27 Financial Data Schedule. (b) Reports on Form 8-K. The Registrant filed a report on Form 8-K on February 24, 1997 under Item 5 ("Other Events"). No financial statements were filed with that report. -13- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WEBSECURE, INC. Date: April 21, 1997 By: /s/ Carroll M. Lowenstein --------------------------------- Carroll M. Lowenstein President Date: April 21, 1997 /s/ Carole A. Ouellette ------------------------------------- Carole A. Ouellette Chief Financial Officer -14- EX-27 2 FDS
5 3-MOS AUG-31-1996 SEP-01-1996 NOV-30-1996 7,974 0 55,678 0 9,106 133,591 1,576,243 296,518 2,135,718 2,088,519 826,837 0 0 21,050 6,250 2,135,718 28,198 87,041 27,490 188,012 542,018 0 (33,334) (676,323) 0 (642,989) 0 0 0 (676,323) (.14) (.14) Due to the results of an investigation, the Company eliminated $800,000 of software revenue since it was determined that it has never delivered the software even though it received $791,750 from two purported sublicensees for said software.
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